Two recent orders illustrate how the Hawaii Public Utilities Commission’s growing frustration with Hawaiian Electric Company’s halting progress on clean energy development is matched with an increasingly weak hand in dealing with the utility’s delays.

A new round of back-and-forth between the PUC and HECO began with an April 29 order in which the regulator approved the proposed Kapolei Battery Energy Storage System (BESS), a 185-MW, 565-MWh system to be built on Oahu.

In approving the project, the PUC cited concerns about HECO’s two-year delay in developing other renewable energy projects, which could stall the decommissioning of AES’s coal-fired Hawaii Power Plant (37754). (See Discontent Mounts over HECO Coal Plant Closure Plans.)

“The Commission is approving this Project to provide further assurance that the ‘lights will stay on’ during the retirement of the AES coal plant in 2022 and future retirements of aging fossil-fueled plants in the next several years,” the PUC wrote.

The other order directed HECO to quantify the customer costs stemming from its delays in building renewable energy projects (37752). The PUC said that “due to the ongoing loss of customer bill savings resulting from these delays, the Commission finds it necessary to direct Hawaiian Electric to quantify the magnitude of those lost savings.”

The order requires HECO to “establish regulatory liabilities” to record costs arising from the delays of Stage 1, Stage 2 and Community Based Renewable Energy (CBRE) Phase 1 projects.

The PUC made its frustrations clear in the BESS order: “Despite the Commission’s multiple admonitions to utilize standalone storage fueled by fossil fuels as a last resort, Hawaiian Electric appears to continue ignoring the high costs of this Project and attendant risks of further dependence on fossil fuel by their representations throughout this docket.”

It added that “the urgency of this situation is largely a byproduct of Hawaiian Electric’s willful disregard of the Commission’s guidance and presents a number of concerning impacts to ratepayers.”

The PUC approval of the BESS came with nine conditions, including:

• • • a prohibition on HECO seeking cost recovery through performance incentive mechanism (PIM) awards for Stage 1 projects;
    • removal of requirements for energy storage on Phase 2 CBRE projects on Oahu, expanded CBRE capacity, and removal of daytime export restrictions for existing and new distributed energy resources programs;
    • commitment to closure dates for fossil fuel units at HECO’s Waiau and Kahe facilities;
    • submission of monthly reports on the amount of fossil-fuel energy stored in BESS and how much the facility is being used;
    • adherence to a PUC-mandated minimum threshold for renewable energy charging for BESS, or face penalties for failing to do so;
    • prohibition of HECO affiliates from having a relationship with BESS;
    • creation of an annual utilization report that includes an explanation for any missed milestones;
    • creation of an “end-of-life management plan” for BESS;
    • crediting of all daily delay damages to HECO customers.

‘Highly Problematic’

HECO and BESS developer Kapolei Energy Storage I (KES) filed separate motions for reconsideration of Order 37754.

In its motion, HECO said while it understood the need for some of the conditions, “at least four are highly problematic for reasons that go well beyond the Project.” It argued that the PUC’s approval “is in title only” because the conditions would be tantamount to forcing HECO or KES to cancel the energy storage power purchase agreement (ESPPA).

HECO complained that the rejection of PIM awards for BESS amounts to a $1.7 million loss, what the utility calls a violation of its due process rights. It also contended that removing grid constraints for CBRE would require physical upgrades to the grid, while the “forced financial or operational retirement” of fossil fuel burning units raises financial and grid reliability concerns.

HECO expressed particular concern about the minimum renewable energy charge requirement, saying it would prevent BESS from charging at times when renewable energy is unavailable, and that the requirement for a minimum unlawfully exceeds targets in Hawaii’s renewable portfolio standard (RPS) rules. The condition renders BESS “largely unusable,” and if not removed, “it will mean that the KES Project will have been effectively terminated,” HECO said.

The utility expressed its frustration with the PUC, saying that it is “particularly troubled by the accusatory and derogatory statements from the Commission that have seemed to escalate as of late.” It says that the development of renewable infrastructure is complex and that missteps and differences of opinion can result.

In addition, HECO said that “the Company respectfully submits that the Commission’s unsupported and unnecessarily disparaging characterization of the Company’s planning efforts is erroneous, not supported by fact.” It said many factors contributing to delays were out of HECO’s control, including the PUC’s reviewing time.

“Simply put, this is a good project and one that is needed now,” HECO said.

KES Motion

KES’s motion noted that the ESPPA gives HECO sole discretion to determine whether a PUC approval order is satisfactory and that the PUC’s added conditions could pressure the utility to cancel the deal altogether. The company also expressed worry that the project could suffer additional delays if HECO requested a stay of the approval order. A delay or cancellation of BESS would further jeopardize the planned retirement of the AES coal plant, KES said.

KES also argued that the first five conditions in the order could constitute an abuse of discretion on the part of the PUC, citing a Hawaii Supreme Court ruling as saying such an abuse exists if “an agency’s sudden change of direction leads to undue hardship for those who had relied on past policy.”

The company additionally contended that the PUC took more than eight months to consider BESS, a timeline that forced the company to “redesign and renegotiate its construction and supplier plans and deadlines,” along with dealing with a “global supply crunch” for batteries.

KES also expressed frustration at the PUC’s characterization of the proceedings, saying the company “was deeply disappointed” to see PUC Chair James Griffin equate the charging of BESS with oil-fired generation with the use of crack.

HECO and KES both said that BESS is important for the decommissioning of the AES coal plant, and that the PUC’s conditions are better served in separate dockets rather than being tied to the approval of BESS.

PUC Yields

The PUC on Friday gave ground on most of the conditions, partially granting HECO’s motion for reconsideration while denying KES’s motion as moot.

The regulator’s response eliminated the first (PIM) condition entirely, while removing the second to be reused in corresponding DER and CBRE dockets. In modifying the third condition, the PUC still required HECO to shut down Waiau Units 3 and 4 while removing the requirements for the other units.

The PUC also agreed to modify the fifth condition to remove the minimum thresholds and will instead conduct an annual “prudence” review. The seventh condition will remain but with fewer requirements for HECO’s Annual Utilization Report.

The PUC also denied HECO’s request to strike the “offending” language used in Order 37754, saying it “used pointed language in describing its disappointment with being placed in the position of having few options to respond to the extremely serious situation that is developing as a result of the retirement of the AES coal plant next year” and that “the record in this proceeding clearly supports the Commission’s findings and conclusions.”

After reviewing the PUC’s changes to the modifications, HECO agreed to proceed with the project. However, the utility maintained that it “still disagrees with that certain language and those certain characterizations used” in order 37754.